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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 152 added, 93 removed, 185 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis together with our financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (Quarterly Report).

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties.

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Starting in the third quarter of 2018, we began selling in select geographies outside the United States and our technology solutions are now available in approximately 25 countries worldwide.

For the four-year period ended December 31, 2023, we shipped approximately 450,000 insulin pumps, which is representative of our in-warranty global installed customer base assuming the typical four-year reimbursement cycle.

The t:slim X2 insulin pump has been our flagship technology solution.

In February 2024, we expanded our pump portfolio with commercial U.S.

availability of the Tandem Mobi insulin pump, which is the world’s smallest durable automated insulin delivery (AID) system.

Through our portfolio approach, we offer people living with diabetes a choice in their therapy management system based on their individual needs and preferences.

In support of this strategy, we recently expanded our portfolio which now includes both the t:slim X2 and the Tandem Mobi insulin pumps.

The Tandem Mobi insulin pump is the world’s smallest durable automated insulin delivery (AID) system.

At approximately half the size of our t:slim X2 pump, Tandem Mobi is designed for people who seek even greater discretion and flexibility, and includes features such as expanded pump-control from our iOS mobile application, inductive charging, and an on-pump button that can be used for bolusing and other actions.

In the United States, we began a limited release of Tandem Mobi in the fourth quarter of 2023 followed by commercial availability in February 2024 with Dexcom G6 sensor integration.

In March 2024, the United States Food and Drug Administration (FDA) cleared our 510(k) application for Tandem Mobi with an expanded pediatric indication for use in individuals two years of age and older.

With both the t:slim X2 and Tandem Mobi in our product portfolio, we are offering people living with diabetes a choice between insulin pump platforms based on their individual needs and preferences in insulin delivery.

The majority of our customers use their insulin pump with continuous glucose monitoring (CGM) integration.

Throughout the first half of 2024, we scaled the commercial release of Tandem Mobi in the United States, first offering integration with the Dexcom G6 sensor beginning in February followed by the Dexcom G7 beginning in June.

The majority of our customers use their insulin pump with CGM integration.

This allows their insulin pump to receive CGM sensor readings, which can then be used in our AID algorithms, including our Control-IQ technology.

Control-IQ is an advanced hybrid-closed loop feature designed to help increase a user’s time in their targeted glycemic range.

Multiple studies have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained.

It was the first system cleared by the FDA to deliver automatic correction boluses in addition to adjusting insulin to help prevent high and low blood sugar.

Multiple studies, including three publications in the New England Journal of Medicine, have demonstrated that use of Control-IQ technology provides people across all demographics with improved clinical outcomes that are both immediate and sustained.

The t:slim X2 was the first pump on which remote software updates were made commercially available in the United States and is now also available in the countries we serve worldwide.

Our Tandem Device Updater (TDU) has allowed our t:slim X2 customers to update their pump software from a personal computer.

Tandem Mobi offers the same update capability with wireless, remote updates.

This offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements, such as new developments in our AID technology, CGM integrations and mobile app features.

As an example, we recently launched a pump software update through TDU to allow all t:slim X2 pump users in the United States access to integration with two new CGM sensor offerings.

This has allowed our t:slim X2 and Tandem Mobi customers to update their own pump software.

We believe this offering is a competitive advantage that allows us to bring our customers clinical and lifestyle enhancements, such as new developments in our AID technology, CGM integrations and mobile app features.

As an example, we recently launched pump software updates to allow Tandem pump users access to integrate with new CGM sensors.

Our insulin pump products are generally considered durable medical equipment (DME) and have an expected lifespan of at least four years.

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As our portfolio expands, we are pursuing a multi-channel managed care strategy and are in discussions to begin serving Mobi customers through the pharmacy channel.

In the United States, we also offer a data management web application that provides users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from our pumps, integrated CGMs and supported blood glucose meters.

Our first-generation data management application, t:connect, was commercially introduced in the United States in 2013.

In the second quarter of 2023, we began a scaled global launch, starting with the United States, of our second-generation data management application, Tandem Source.

For more than a decade we have offered our customers, their caregivers and healthcare providers a data management application to provide a fast, easy and visual way to display diabetes therapy management data from our pumps and integrated CGMs.

In the second quarter of 2023, we expanded our digital technology solutions with the launch of Tandem Source in the United States.

In addition to displaying diabetes therapy management data, Tandem Source is also designed to serve as a portal for supplies reordering and pump software updates.

In the second quarter of 2024, we began a scaled launch of Tandem Source outside the United States.

Our Strategy & Future Technology

Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences.

Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights.

Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team, by providing flexibility and choice in intelligent insulin delivery systems through an accessible portfolio of market-leading pumps, applications, and insights.

In support of this strategy, our portfolio of future technologies includes:

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Infusion sets provide additional choice and flexibility to people living with diabetes.

Our goals for infusion set innovations focus on solutions that extend wear time and enhance user experience, while reducing occlusions, body burden and waste.

In support of this effort, unique extended wear infusion set technology is expected to be part of our future portfolio.

We are currently developing extended wear infusion set technology.

Our goals for future infusion set innovations include solutions that enhance user experience, while reducing occlusions, body burden and waste.

Control-IQ Advancements

We are continuing to drive innovation in our algorithms, emphasizing automation, personalization and simplification to continue to improve therapeutic outcomes and provide a positive patient experience.

In 2023, we began a pivotal study to support expanding indications to include people living with type 2 diabetes.

In late 2023, our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older.

We are also researching the use of different insulins with our Control-IQ technology.

In the second quarter of 2024, we completed enrollment for a pivotal study to support expanding indications to include people living with type 2 diabetes.

We are also pursuing the use of different insulins with our Control-IQ technology.

For example, in the second quarter of 2024, Health Canada approved the addition of Trurapi U-100 to the list of compatible insulins that can be used with our t:slim X2 pump with Control-IQ technology in Canada.

Pump Reimbursement Cycle

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At the end of the typical four-year reimbursement cycle, customers may be eligible to purchase a new insulin pump, subject to the rules and requirements of their primary insurance payor.

While warranties generally expire four years from the original pump shipment date, those customers that renew typically take up to one year from date of warranty expiration to purchase a subsequent pump.

While warranties generally expire four years from the original pump shipment date, those customers that renew take on average up to one year from date of warranty expiration to purchase a subsequent pump.

While the majority of our insulin pump sales from initial commercialization through the current period have been generated by sales to new customers, the opportunity to make subsequent sales of renewal insulin pumps to existing customers increases each period as an escalating number of customer warranties expire.

With programs dedicated to customer retention efforts, we expect such renewal purchases to represent an increasing portion of our pump shipments over time.

For the four-year period ended December 31, 2023, we shipped approximately 450,000 insulin pumps worldwide, which is representative of our global in-warranty installed customer base.

In this period, more than 310,000 pumps were shipped to customers in the United States and approximately 140,000 pumps in approximately 25 countries outside the United States.

At the end of 2023, we had approximately 450,000 users in our in-warranty installed base, approximately one-third of whom live outside the United States.

The ordering patterns of, and levels of inventory carried by, our distributors outside the United States for pumps and supplies have historically been highly variable from period to period due to a number of factors, including summer vacations, the timing of product launches into new geographies and variability due to supply chain logistics, particularly during the global pandemic.

This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the U.S.

This also influences the timing in which renewal eligibility begins for existing customers, which may not initially be consistent with trends in the United States market.

We recently began completing a full four-year reimbursement cycle in an increasing number of our markets outside of the United States.

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• We have historically experienced higher net sales in our third and fourth quarters compared to the first half of the year.

We believe our July 2023 announcement of FDA clearance of Tandem Mobi and its anticipated launch impacted the timing of purchasing decisions by our current and prospective customers in the second half of 2023 up through the U.S.

commercial availability of Tandem Mobi in February 2024, resulting in delays that were unlike historical seasonal patterns or purchasing behaviors.

We believe our July 2023 announcement of U.S.

Food and Drug Administration (FDA) clearance of Tandem Mobi and its anticipated launch impacted the timing of purchasing decisions by our current and prospective customers in the second half of 2023 up through the United States commercial availability of Tandem Mobi in February 2024, resulting in delays that were unlike historical seasonal patterns or purchasing behaviors.

Regulatory approval and/or upcoming launches of other new Tandem or competitor products could also adversely impact timing of purchasing decisions.

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• We have expanded our business and launched new products in select geographies outside the United States.

The ordering patterns of our distributors outside the United States has been highly variable from period to period.

For example, we began operations of a European distribution center beginning in the third quarter of 2022, which led to downward adjustments of inventory levels at our distributors starting in late 2022 and continuing through the first half of 2023.

The ordering patterns of our distributors outside the United States has historically been highly variable from period to period.

For example, we began operations of a European distribution center which led to a reduction of inventory levels at our distributors, significantly impacting sales patterns in the second half of 2022 and first half of 2023.

• Seasonality in the United States is associated with annual insurance deductibles and coinsurance requirements of the medical insurance plans used by our customers and the customers of our distributors.

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See also “Trends and Uncertainties Impacting Financial Results—Seasonality” above.

In September 2022, we began offering the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of our newest hardware platform, Tandem Mobi, for a fee when available.

We began selling Tandem Mobi insulin pumps in the first quarter of 2024 and eligibility for the Tandem Choice program ended in February 2024.

Eligible customers who purchased a t:slim X2 insulin pump during the program period will have until December 31, 2024 to exercise the option to switch to the Tandem Mobi for a stated fee.

From September 2022 through February 2024, we offered the Tandem Choice program to eligible t:slim X2 customers to provide a pathway to ownership of our newest hardware platform, Tandem Mobi, for a fee when available.

Eligible customers who purchased a t:slim X2 insulin pump during the program period have until December 31, 2024 to exercise the option to switch to the Tandem Mobi for a stated fee.

The accounting treatment for Tandem Choice is complex (see Note 2, “Summary of Significant Accounting Policies”).

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No election was made by the customer at the time of the initial sale, nor did the right offered to the customer impact the economics associated with how or when the initial pump sale was reimbursed.

If a customer elects to participate in Tandem Choice, we will recognize the existing deferral, incremental fees received and the associated costs of providing the new insulin pump, Tandem Mobi, at the time of fulfillment.

Any remaining deferrals will be recognized at program expiration.

The total Tandem Choice deferral was $31.5 million as of March 31, 2024.

If a customer elects to participate in Tandem Choice, we will recognize the existing sales deferral, incremental fees received and the associated costs of goods sold of providing the new insulin pump, Tandem Mobi, at the time of fulfillment.

Qualifying customers were able to elect participation in Tandem Choice starting near the end of the second quarter of 2024.

Any remaining deferrals will be recognized when the program ends on December 31, 2024.

The balance of the Tandem Choice deferral was $31.0 million as of June 30, 2024.

Cost of Sales

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Three Months Ended

June 30, Six Months Ended June 30,

(in thousands, except percentages) 2024 2023 2024 2023

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Net loss $ (30,814) $ (35,775) $ (73,529) $ (159,648)

Comparison of the Three Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, sales were $191.7 million, which included $61.9 million of sales outside the United States.

For the three months ended March 31, 2024, we deferred $1.1 million of pump sales as the result of Tandem Choice, which launched in the United States in September of 2022 and for which eligibility to participate ended in February 2024 in conjunction with the launch of Tandem Mobi.

Sales were $169.4 million for the same period in 2023, which included $38.1 million of sales outside the United States.

For the three months ended March 31, 2023, we deferred $2.0 million of pump sales as the result of Tandem Choice.

Comparison of the Three Months Ended June 30, 2024 and 2023

For the three months ended June 30, 2024, we shipped more than 30,000 pumps worldwide.

Sales were $221.9 million, which included $65.2 million of sales outside the United States.

Sales were $195.9 million for the three months ended June 30, 2023, which included $53.4 million of sales outside the United States.

For the three months ended June 30, 2024, we recognized incremental pump sales of $0.2 million as a result of Tandem Choice fulfillment.

For the three months ended June 30, 2023, our revenues were reduced by $2.3 million for pump sales as a result of sales deferrals related to Tandem Choice.

The Tandem Choice program launched in the United States in September of 2022 and eligibility to participate in the program ended in February 2024 in conjunction with the launch of Tandem Mobi.

Sales by product in the United States were as follows (in thousands):

Three Months Ended

Approximate pump shipments

15,000 17,000

Pump $ 81,745 $ 74,360

Supplies and other 74,812 70,450

Deferral for Tandem Choice program (1,146) (2,023)

Net revenue recognized (deferred) for Tandem Choice program

Total Sales in the United States $ 156,711 $ 142,501

Pump sales in the United States were $61.7 million for the first quarter of 2024, compared to $66.5 million in the first quarter of 2023 as pump shipments decreased in the first quarter of 2024 compared to the same period in 2023.

In February 2024, Tandem Mobi became commercially available in the U.S.

through a staged launch, initially available with Dexcom G6 sensor integration.

We believe anticipation of our newest technology, such as Tandem Mobi integration with the Dexcom G7 sensor, affected the timing of purchasing decisions, resulting in some customers delaying purchases to future periods.

Sales of pump-related supplies increased primarily due to a year-over-year increase in our installed base of customers in the United States.

Sales to distributors accounted for 61% and 65% of our total sales in the United States for the three months ended March 31, 2024 and 2023, respectively.

Sales in the United States for the three months ended March 31, 2024 and 2023 were reduced by a deferral as the result of our Tandem Choice program which launched in September of 2022, for which eligibility to participate ended in February 2024, resulting in a reduction in the deferral compared to the prior year.

Our pump shipments in the United States increased by 8% to more than 20,000 pumps in the second quarter of 2024 compared to the second quarter of 2023.

Pump sales in the United States were $81.7 million for the second quarter of 2024, compared to $74.4 million in the second quarter of 2023.

We also benefited from an increase in average selling prices.

The scaled launch of Tandem Mobi has impacted, and may continue to impact, the timing of customer purchases.

For example, Tandem Mobi became commercially available in the United States in February 2024 initially with Dexcom G6 sensor integration, followed by Dexcom G7 sensor integration in June 2024.

Sales of pump-related supplies increased primarily due to a year-over-year increase in our installed base of customers in the United States, as well as an increase in average selling prices.

Sales in the United States for the three months ended June 30, 2023 were reduced by deferrals related to Tandem Choice for which eligibility to participate ended in February 2024.

The associated sales deferrals also ended in February 2024.

We began Tandem Choice fulfillment in the second quarter of 2024, resulting in incremental sales of $0.2 million.

Sales by product outside the United States were as follows (in thousands):

Three Months Ended

Approximate pump shipments

Pump $ 26,130 $ 27,317

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Total Sales Outside the United States $ 65,199 $ 53,416

Pump sales outside the United States were $25.6 million for the first quarter of 2024, compared to $18.2 million in the first quarter of 2023.

Pump sales and shipments increased due to an operational transition to a centralized European distribution center in the first half of 2023.

Our pump shipments outside the United States decreased by 6% to nearly 10,000 pumps for the second quarter of 2024 compared to the second quarter of 2023.

Pump sales outside the United States were $26.1 million for the second quarter of 2024, compared to $27.3 million in the second quarter of 2023.

Pump sales and shipments decreased slightly due to variable pump ordering and stocking patterns, partially offset by an increase in average selling prices due primarily to geographical mix.

Sales of pump-related supplies increased due to a year-over-year increase in our installed base of customers outside the United States, as well as modest disruption related to an operational transition to a centralized European distribution center impacting orders in 2023.

Cost of Sales and Gross Profit

Our cost of sales for the three months ended June 30, 2024 was $109.1 million , resulting in gross profit of $112.8 million, compared to cost of sales of $94.2 million and gross profit of $101.7 million for the same period in 2023.

The gross margin for the three-month periods ended June 30, 2024 and 2023 was 51% and 52%, respectively.

Gross profit for the three months ended June 30, 2023 was reduced by $2.3 million, or approximately one percentage point of gross margin due to Tandem Choice.

The effect of our Tandem Choice program on gross profit and gross margin was negligible for the three months ended June 30, 2024.

The impact on gross margin from Tandem Choice will continue to fluctuate through the end of the program based on the number of eligible customers who ultimately elect to participate.

Excluding the impact of Tandem Choice, gross margin decreased compared to the prior year period.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher labor and overhead on a per-unit basis as we scale volumes of Tandem Mobi in this initial launch phase.

Gross margin was also impacted by product and geographical mix.

Pump sales, which have the highest gross margin, were 49% of total worldwide sales, excluding the impact of Tandem Choice, in the second quarter of 2024, compared to 51% in the second quarter of 2023.

Operating Expenses

Our operating expenses for the three months ended June 30, 2024 were $143.6 million, compared to $140.5 million for the three months ended June 30, 2023.

The $3.1 million increase was primarily driven by increased development efforts for pipeline products as well as the ramp up of sales and marketing for Mobi.

Selling, General and Administrative Expenses.

SG&A expenses were $94.2 million for the three months ended June 30, 2024, compared to $97.6 million for the same period in 2023, which included a one-time lease impairment charge of $14.1 million.

Due to cost reduction efforts in 2023, our facilities and IT equipment expenses decreased $1.8 million compared to the prior period.

This was offset by a $7.6 million increase in employee-related spending.

We also experienced an $4.9 million increase in outside services, supplies, and travel expenses largely related to the launch of multiple new products, as well as IT software and services.

Research and Development Expenses .

R&D expenses increased to $49.3 million for the three months ended June 30, 2024, from $42.9 million for the same period in 2023.

The increase in R&D expenses was primarily the result of an increase of $5.6 million in employee benefits and salaries due to an increase in personnel to support our product development efforts.

We also experienced an increase in other non-employee discretionary spending, including clinical trial expenses, supplies and equipment costs.

Other Income (Expense), Net

Total other income (expense), net for the three months ended June 30, 2024 was $1.0 million income, compared to $4.2 million income in the same period in 2023.

Other income, net for the three months ended June 30, 2024 primarily consisted of $5.3 million of interest income earned on our cash equivalents and short-term investments, partially offset by a $2.0 million impairment on a strategic investment in a private company, and $1.8 million of interest expense which included the amortization of debt issuance costs related to our convertible senior notes due 2025 and 2029 (the 2025 Notes and the 2029 Notes, respectively).

Other income, net for the three months ended June 30, 2023 primarily consisted of $5.1 million of interest income earned on our cash equivalents and short-term investments and $0.7 million in foreign currency transaction gains, partially offset by $1.6 million of interest expense which included the amortization of debt issuance costs related to the 2025 Notes.

Income Tax Expense

We recognized income tax expense of $1.1 million on a pre-tax loss of $29.7 million for the three months ended June 30, 2024, compared to income tax expense of $1.1 million on a pre-tax loss of $34.6 million for the three months ended June 30, 2023.

Income tax expense for the three months ended June 30, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Comparison of the Six Months Ended June 30, 2024 and 2023

For the six months ended June 30, 2024, we shipped more than 55,000 pumps worldwide.

Sales were $413.6 million, which included $127.1 million of sales outside the United States.

For the six months ended June 30, 2024, our revenues were reduced by $1.0 million of pump sales as a result of sales deferrals related to our Tandem Choice program.

Pump sales after February 2024 were not eligible for Tandem Choice.

Sales were $365.3 million for the same period in 2023, which included $91.6 million of sales outside the United States.

For the six months ended June 30, 2023, we deferred $4.3 million of pump sales as the result of Tandem Choice.

Sales by product in the United States were as follows (in thousands):

Six Months Ended June 30,

Pump $ 143,465 $ 140,816

Supplies and other 143,999 137,259

Net revenue recognized (deferred) for Tandem Choice program

(992) (4,332)

Total Sales in the United States $ 286,472 $ 273,743

Our pump shipments in the United States decreased by 1% to nearly 36,000 pumps for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Pump sales in the United States were $143.5 million for the six months ended June 30, 2024, compared to $140.8 million for the same period in 2023.

We also benefited from an increase in average selling prices.

Sales of pump-related supplies increased primarily due to a year-over-year increase in our ending estimated installed base of customers in the United States, as well as increase in average selling prices.

Sales in the United States for the six months ended June 30, 2024 and 2023 were reduced by $1.0 million and $4.3 million, respectively, as the result of net sales deferrals related to our Tandem Choice program.

The decrease in the net revenue deferral for Tandem Choice in 2024 as compared to 2023 was primarily due to the cessation of the sales deferral period in February 2024, which coincided with the launch of Tandem Mobi.

Pump sales that occurred after February 2024 were not eligible for Tandem Choice, nor subject to a sales deferral.

We began Tandem Choice fulfillment in the second quarter of 2024 resulting in incremental sales of $0.2 million for the six months ended June 30, 2024.

Sales by product outside the United States were as follows (in thousands):

Six Months Ended June 30,

Pump $ 51,697 $ 45,563

Supplies and other 75,415 45,994

Total Sales Outside the United States $ 127,112 $ 91,557

Our pump shipments outside the United States increased by 17% to more than 19,000 pumps for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Pump sales outside the United States were $51.7 million for the six months ended June 30, 2024, compared to $45.6 million for the same period in 2023.

Pump sales and shipments increased due primarily to an operational transition to a centralized European distribution center in the first half of 2023.

Distributor ordering patterns were significantly disrupted during that transition period, which negatively affected pump and supply shipments and sales.

The transition was completed by the second half of 2023.

The increase in pump shipments was partially offset by a decrease in average selling prices due primarily to geographical mix.

Sales of pump-related supplies increased due to a year-over-year increase in our installed base of customers outside the United States.

The increase in pump sales was offset by a slight decrease in average selling prices due primarily to geographical mix.

In addition to the distribution center transition, sales of pump-related supplies outside the United States increased due to growth in our installed base of customers.

Sales to distributors accounted for the overwhelming majority of our total sales outside the United States for the six-month periods ended June 30, 2024, and 2023.

Cost of Sales and Gross Profit

Our cost of sales for the three months ended March 31, 2024 was $97.0 million , resulting in gross profit of $94.7 million, compared to cost of sales of $86.5 million and gross profit of $82.9 million for the same period in 2023.

The gross margin for each of the three-month periods ended March 31, 2024 and 2023 was 49%.

Gross profit for the three months ended March 31, 2024 and 2023 was reduced by $1.1 million and $2.0 million, respectively, from sales deferrals related to Tandem Choice.

The effect of these sales deferrals was a gross margin reduction of one percentage point for both periods presented.

The impact on gross margin from our Tandem Choice program will fluctuate through the end of the program based on the number of eligible customers who ultimately elect to participate.

Excluding the impact of Tandem Choice, gross margin was consistent with the prior year.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher overhead on a per-unit basis as we scale volumes of Tandem Mobi in this initial launch phase.

Our cost of sales for the six months ended June 30, 2024 was $206.1 million resulting in gross profit of $207.5 million, compared to cost of sales of $180.7 million and gross profit of $184.6 million for the same period in 2023.

The gross margin for the six months ended June 30, 2024 was 50% compared to 51% in the same period in 2023.

The effect of Tandem Choice was negligible for the six months ended June 30, 2024 compared to a gross margin reduction of approximately 1 percentage point for the six months ended June 30, 2023.

The impact on gross margin from our Tandem Choice program will fluctuate through the expiration of the program based on the number and timing of eligible customers who ultimately elect to participate.

Excluding the impact of Tandem Choice, gross margin for the six months ended June 30, 2024 was 50 percent compared to 51 percent in the same period of the prior year.

Gross margin benefited from pricing improvement and lower materials cost, offset by higher labor and overhead costs on a per-unit basis as we scale volumes of Tandem Mobi in our initial launch phase.

Gross margin was also impacted by product and geographical mix.

Pump sales, which have the highest gross margin, were 45% of total worldwide sales, excluding the impact of Tandem Choice, in the first quarter of 2024, compared to 49% in the first quarter of 2023.

Pump sales, which have the highest gross margin, were 47% of total worldwide sales, excluding the impact of Tandem Choice, in the first six months of 2024, compared to 50% in the first six months of 2023.

Operating Expenses

Our operating expenses for the three months ended March 31, 2024 were $136.4 million, compared to $210.7 million for the three months ended March 31, 2023.

The $74.4 million decrease was primarily driven by $78.8 million of acquired in-process research and development expenses incurred in 2023 in connection with our acquisition of AMF Medical, for which there was no comparable expense in the first quarter of 2024.

Our operating expenses for the six months ended June 30, 2024 were $279.9 million, compared to $351.3 million for the six months ended June 30, 2023.

The $71.4 million decrease was primarily driven by $78.8 million of acquired in-process research and development expenses incurred in 2023 in connection with our acquisition of AMF Medical, for which there was no comparable expense in 2024.

In 2023, we also incurred a non-recurring operating lease impairment charge in SG&A of $14.1 million as a result of a facilities consolidation (see Note 6, “Leases”), and employee severance costs of $2.7 million.

Selling, General and Administrative Expenses.

SG&A expenses were flat at $90.1 million for the three months ended March 31, 2024, compared to $89.8 million for the same period in 2023.

Due to cost reduction efforts in 2023, our facilities expense decreased by $3.9 million and our headcount and employee-related spending was in line with the first quarter of the prior year.

This improvement was offset by an increase in consulting, travel, and supplies expenses largely related to the launch of multiple new products, as well as IT software and services.

SG&A expenses decreased 2% to $184.3 million for the six months ended June 30, 2024, from $187.4 million for the same period in 2023.

Expenses decreased due to non-recurring expenses of $14.1 million related to lease impairment charges and $2.1 million in severance costs in 2023, offset by current year increases of $12.9 million in employee-related and marketing and consulting expenses which related to new product launches.

Research and Development Expenses .

R&D expenses increased to $46.2 million for the three months ended March 31, 2024, from $42.2 million for the same period in 2023.

The increase in R&D expenses was primarily the result of a $2.4 million increase in employee benefits and salaries due to our acquisitions and an increase in personnel to support our product development efforts.

We also experienced a $1.7 million increase in other non-employee discretionary spending, including clinical trial expenses, outside services and equipment costs.

R&D expenses increased 12% to $95.6 million for the six months ended June 30, 2024, from $85.1 million for the same period in 2023.

The increase in R&D expenses was primarily the result of an increase in salaries and related benefits from our acquisitions and an increase in personnel to support our product development efforts.

We also experienced an increase in other non-employee discretionary spending, including clinical trials costs and equipment expenses.

Acquired In-Process Research and Development Expenses.

Acquired IPR&D expenses of $78.8 million for the three months ended March 31, 2023 represented the value of assets acquired, and acquisition related expenses, in connection with our acquisition of AMF Medical (see Note 12, “Acquisitions”).

Acquired IPR&D expenses of $78.8 million for the six months ended June 30, 2023 represented the value of assets acquired, and acquisition related expenses, in connection with our acquisition of AMF Medical (see Note 12, “Acquisitions”).

Other Income (Expense), Net

Total other income (expense), net for the three months ended March 31, 2024 was $2.1 million income, compared to $4.2 million income in the same period in 2023.

Other income, net for the three months ended March 31, 2024 primarily consisted of $5.3 million of interest income earned on our cash equivalents and short-term investments, partially offset by $1.9 million of interest expense which included the amortization of debt issuance costs related to our convertible senior notes due 2025 and 2029 (the 2025 Notes and the 2029 Notes, respectively).

We also incurred a loss on debt extinguishment of $1.3 million during the quarter.

Other income, net for the three months ended March 31, 2023 primarily consisted of $4.2 million of interest income earned on our cash equivalents and short-term investments and $1.6 million in foreign currency transaction gains, partially offset by $1.6 million of interest expense which included the amortization of debt issuance costs related to the 2025 Notes.

Total other income (expense), net for the six months ended June 30, 2024 was $3.2 million income, compared to $8.4 million expense in the same period in 2023.

Other income, net for the six months ended June 30, 2024 primarily consisted of $10.8 million of interest income earned on our cash equivalents and short-term investments, partially offset by $3.7 million of interest expense which included the amortization of debt issuance costs related to our 2025 Notes and 2029 Notes.

Other income, net for the six months ended June 30, 2023 primarily consisted of $9.3 million of interest income earned on our cash equivalents and short-term investments, and $2.3 million in foreign currency transaction gains, partially offset by $3.2 million of interest expense which included the amortization of debt issuance costs related to our 2025 Notes.

Income Tax Expense

We recognized income tax expense of $3.2 million on a pre-tax loss of $39.5 million for the three months ended March 31, 2024, compared to income tax expense of $0.3 million on a pre-tax loss of $123.6 million for the three months ended March 31, 2023.

Income tax expense for the three months ended March 31, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

We recognized income tax expense of $4.3 million on a pre-tax loss of $69.3 million for the six months ended June 30, 2024, compared to income tax expense of $1.4 million on a pre-tax loss of $158.2 million for the six months ended June 30, 2023.

Income tax expense for the six months ended June 30, 2024 and 2023 was primarily attributable to federal, state and foreign income tax expense as a result of current taxable income in certain jurisdictions.

Liquidity and Capital Resources

At March 31, 2024, we had $467.8 million in cash and cash equivalents and short-term investments.

At June 30, 2024, we had $452.4 million in cash and cash equivalents and short-term investments.

We believe that our cash and cash equivalents, short-term investments, and future cash flows from operations will be sufficient to fund our ongoing core business activities for at least the next 12 months.

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We expect to rely on these sources of cash, primarily from product sales, to fund our material cash requirements in both the short and long term.

The following table shows a summary of our cash flows for the three months ended March 31, 2024, and 2023 (in thousands):

Three Months Ended March 31,

The following table shows a summary of our cash flows for the six months ended June 30, 2024, and 2023 (in thousands):

Six Months Ended June 30,

Net cash provided by (used in):

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Effect of foreign exchange rate changes on cash 112 107

Net increase (decrease) in cash and cash equivalents $ 111 $ (44,755)

Net decrease in cash and cash equivalents

$ (11,171) $ (41,766)

Operating Activities .

Net cash used in operating activities was $8.0 million for the three months ended March 31, 2024, compared to $18.3 million cash used in the same period in 2023.

For the three months ended March 31, 2024, net loss was $43.3 million, net non-cash adjustments were $29.8 million, and change in working capital balances was an increase of $5.5 million.

For the three months ended March 31, 2023, net loss was $123.9 million, net non-cash adjustments were $105.5 million and change in working capital balances was a $0.1 million decrease.

For the three months ended March 31, 2023, net non-cash adjustments included $78.8 million of acquired in-process research and development expenses related to our acquisition of AMF Medical.

Net cash used in operating activities was $13.3 million for the six months ended June 30, 2024, compared to $24.6 million cash used in the same period in 2023.

For the six months ended June 30, 2024, net loss was $73.5 million, net non-cash adjustments were $63.8 million, and change in working capital balances was an increase of $3.6 million.

For the six months ended June 30, 2023, net loss was $159.6 million, net non-cash adjustments were $150.3 million and change in working capital balances was a $15.3 million decrease.

For the six months ended June 30, 2023, net non-cash adjustments included $78.8 million of acquired in-process research and development expenses related to our acquisition of AMF Medical.

Investing Activities .

Net cash used in investing activities was $5.1 million for the three months ended March 31, 2024, which primarily consisted of $84.2 million of purchases of short-term investments, and $4.5 million in purchases of property and equipment, offset by $83.7 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was $26.3 million for the three months ended March 31, 2023, which was primarily related to $109.1 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $8.8 million in purchases of property and equipment, offset by $163.1 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was $8.6 million for the six months ended June 30, 2024, which primarily consisted of $177.7 million of purchases of short-term investments, and $10.9 million in purchases of property and equipment, offset by $180.1 million in proceeds from maturities and redemptions of short-term investments.

Net cash used in investing activities was $20.6 million for the six months ended June 30, 2023, which was primarily related to $235.5 million of purchases of short-term investments, $69.5 million for the acquisition of AMF Medical, including transaction costs (see Note 12, “Acquisitions”), and $16.2 million in purchases of property and equipment, offset by $303.1 million in proceeds from maturities and redemptions of short-term investments.

Financing Activities.

Net cash provided by financing activities was $13.6 million for the three months ended March 31, 2024, which primarily consisted of net proceeds of $306.9 million from the issuance of the 2029 Notes which was partially offset by $246.1 million used in the repurchase of the 2025 Notes, $30.0 million used in the repurchase and retirement of common stock and $15.8 million used to purchase Capped Call Options related to the 2029 Notes.

In addition, $1.5 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans.

Net cash used in financing activities was $0.5 million for the three months ended March 31, 2023, which primarily consisted of payments for tax withholdings related to the issuance of common stock under our stock plans.

Net cash provided by financing activities was $10.6 million for the six months ended June 30, 2024, which primarily consisted of net proceeds of $306.9 million from the issuance of the 2029 Notes which was partially offset by $246.1 million used in the repurchase of 2025 Notes, $30.0 million used in the repurchase and retirement of common stock and $15.8 million used to purchase Capped Call Options related to the 2029 Notes.

In addition, $4.5 million was used in payments for tax withholdings related to the issuance of common stock under our stock plans, net of proceeds received from common stock issuances for the period.

Net cash provided by financing activities was $3.4 million for the six months ended June 30, 2023, which primarily consisted of proceeds from the issuance of common stock under our stock plans, net of payments for related tax withholdings.

Our liquidity position and capital requirements are subject to fluctuation based on a number of factors.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis